caucasus and central asia - international monetary fund · global outlook has weakened… 3...

Kazakhstan

Turkmenistan

Uzbekistan

Azerbaijan

Armenia

Georgia

Kyrgyz Republic

Tajikistan

Oil and gas exporters

Oil and gas importers

Caucasus and Central Asia Regional Economic Outlook

October 2011

Overview

Global outlook

Caucasus and Central Asia (CCA) outlook and policies

2 Caucasus and Central Asia

Global outlook has weakened…


-1.5

-1.0

-0.5

0.0

World U.S. Euro area CEE Russia Emerging Asia

2011 2012

Source: International Monetary Fund, World Economic Outlook.

Revisions to GDP growth (Percentage point change; June 2011 WEO to September 2011 WEO)

Russia

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

Emerging Asia

Central and

Eastern

Europe

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

Japan

Euro area

Real GDP Growth1

(percent change from a year earlier)

2000 02 04 10 06 08 12

Advanced Economies Emerging Economies

…and recovery is uneven

United States

2000 02 04 10 06 08 12


1Quarterly data, except for Central and Eastern Europe (CEE), where annual data are used.

Source: International Monetary Fund, World Economic Outlook.

5

Equity Markets (index; 2007=100; national currency)

2000 04 Sep.

11

06 08 02 10 0

20

40

60

80

100

120

140

160

DJ EURO STOXX

S&P 500

Asia

Latin America

0

20

40

60

80

100

120

140

160

Russia

Poland

Turkey

Romania

Equity markets have fallen

2000 04 06 08 02 10 Sep.

11 Sources: IMF, World Economic Outlook; and Bloomberg.

Caucasus and Central Asia

6

Government Bond Spreads (two-year yield spreads over German bunds; basis points)

Financial stability risks have increased

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

-100

-50

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Poland

Romania 1/

Russia (RHS)

Turkey (RHS)

Sources: IMF, World Economic Outlook; and Bloomberg.

1/ One-year yield spreads over German bunds.

-50

0

50

100

150

200

250

300

350

400

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Spain

Italy

Belgium

France

Sep.

11

Sep.

11


80

105

130

155

180

205

230

Jan-05 Aug-06 Mar-08 Oct-09 May-11 Dec-12

Food Beverages Agricultural raw materials

Commodity Prices (index; 2005=100)

Commodity prices still high—but may have peaked

Source: IMF, Global Data Source.

-200

200

600

1000

1400

1800

80

120

160

200

240

280

Jan-05 Aug-06 Mar-08 Oct-09 May-11 Dec-12

Energy Metals Gold (RHS) US$ per troy ounce


8

Downside risks have increased sharply


Prospects for world GDP growth (annual percent change)

Downside risks:

• Euro area crisis

• Advanced economy sovereign risks

• Escalating global financial volatility

• Oil supply concerns (risk of higher

oil prices)

Source: IMF, World Economic Outlook.

-1

0

1

2

3

4

5

6

7

8

90% confidence interval

(Apr 2011 WEO)

90% confidence interval

(Sep 2011 WEO)

2008 2009 2010 2011 2012

9

Caucasus and Central Asia: Outlook and Challenges

CCA region:

• Broadly positive growth outlook, but growing external risks

• Inflation remains a concern in many countries

• Banking sectors still impaired in some countries

Oil and gas importers face:

• Limited fiscal space

• External vulnerabilities—

large current account deficits

and debt burden

Oil and gas exporters face:

• Large non-oil fiscal deficits

• The challenge of improving

the quality of public spending

Medium-term challenges:

•Creating jobs and fostering high and inclusive

growth


10

Exports and remittances continue to grow solidly

-90

-60

-30

0

30

60

90

120

May-09 Nov-09 May-10 Nov-10 May-11

ARM AZE GEO

KAZ KGZ TJK

Exports of Goods

Sources: National authorities; and IMF staff calculations.

Remittance Inflows

-40

-20

0

20

40

60

May-09 Nov-09 May-10 Nov-10 May-11

ARM GEO

KGZ TJK

(3-month moving average of year-on-year growth, percent)


11

Growth outlook broadly positive…

Sources: National authorities; IMF, World Economic Outlook; and IMF staff calculations and projections.

-9

-6

-3

0

3

6

9

12

15

2005-08 2009 2010 2011 2012

CCA oil and gas exporters

CCA oil and gas importers

Russia

China

Real GDP (annual growth, percent)

Real GDP Growth

projection 2012


TKM

UZB

AZE

TJK KGZ

KAZ GEO

ARM

World

CEE

2

3

4

5

6

7

8

2012

…but with downside risks

Global Slowdown

Russia

- Remittances

- Exports

- FDI

Commodity Prices and Volumes

- Oil & gas

- Aluminum

- Cotton

- Non-ferrous metals

Financial flows

- Bank credit lines

- FDI

- Rollover needs

- Investment in EUR banks and the region

Risk Channel CCA Impact


13

Inflation remains a concern in the oil and gas exporters…

Headline and Core Inflation (average annual rate, in percent)

Sources: National authorities; IMF, World Economic Outlook; and IMF staff calculations and projections.

0

2

4

6

8

10

12

2009 2010 2011 2012

Headline inflation Core inflation


…and in some oil and gas importers

0

5

10

15

20

25 ARM

GEO

KGZ

TJK

CEE

14

Sources: National authorities; and IMF staff calculations.

Headline CPI Inflation (12-month change; percent)

TJK KGZ

GEO

CEE ARM


Fiscal consolidation is needed

-30

-25

-20

-15

-10

-5

0

2005 2006 2007 2008 2009 2010 2011 2012

CCA oil and gas exporters¹

CCA oil and gas importers

CEE

Fiscal Deficits (fiscal balance; percent of GDP)

Sources: National Authorities; and IMF staff calculations.

¹ Non-oil and gas fiscal balance over non-oil and gas GDP is used.

15

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012

Public Debt (percent of GDP)


Monetary policy – more tightening needed


Nominal Policy Rates1,2

(percent)

0

2

4

6

8

10

12

14

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

CCA oil and gas exporters CCA oil and gas importers CEE

Jun-11

1Weighted by PPPGDP. 2CEE policy rate is the weighted average of Bulgaria, Hungary, Latvia,

Lithuania, Poland, Romania, and Turkey.

Sources: IMF, Global Data Source (GDS) database; and IMF staff calculations and projections.

Real Policy Rates1,2

(percent)

-8

-6

-4

-2

0

2

4

6

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11


Jun-11

17

Need to address external vulnerabilities in the oil and gas importers

Current Account Balance (percent of GDP)

External Debt (percent of GDP)

Sources: National authorities, IFS database, and IMF staff calculations and projections.


-20

-15

-10

-5

0

5

10

15

2007 2008 2009 2010 2011 2012


30

35

40

45

50

55

60

65

70

75

2007 2008 2009 2010 2011 2012

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012

International Reserves

(percent of GDP)

18

Need to repair bank balance sheets in some countries


0

5

10

15

20

25

30

AZE POL TJK ² Emerging Europe¹

KGZ SRB KAZ

2008 2009 2010 2011 (latest)

Nonperforming Loans (on a 90-day basis; percent of total loans)

Sources: National authorities; GFSR.

¹Simple average of NPLs for Albania, Bosnia, Bulgaria, Croatia, Hungary, Lithuania, Latvia, Macedonia,

Montenegro, Poland, Romania, Russia, Serbia, Turkey, and Ukraine. 230-day basis.

Policy Advice in the Event that Risks Materialize

Allow greater ER flexibility

• Step-up communications on risks now

• Allow flexibility if pressures emerge

• Avoid a ―re-run‖ of the 2008-09 response: limit loss of reserves

Ease monetary policy, if conditions warrant

• Lower global commodity prices may allow for easing of monetary policy

Improve quality of fiscal spending—assess scope for targeted

response

• Reorient spending to protect the most vulnerable

• In CCA countries with fiscal space, consider counter-cyclical response


20

Medium-term challenges: Need to address unemployment,...

Measuring Unemployment in the

South Caucasus (2009, percent)

18.7

9.9

6.8 6.1

16.9

0

5

10

15

20

25

30

35

Armenia Azerbaijan² Georgia

Alternative/unofficial¹

Official

30

20

¹Sources: Armenia: Asian Development Bank (2011); Azerbaijan: World

Bank (2010); Georgia: National Demographic Institute, Transparency

International, and Oxford Analytica.

²Data for Azerbaijan refer to 2008.

Youth Population and Unemployment¹ (percent)

0

5

10

15

20

25

30

35

40

45

0 10 20 30 40 50

Yo

uth

Un

em

plo

ym

en

t R

ate

(2

00

9)

Youth Population Share (2010)

Sources: United Nations; International Labour Organization;

Eurostat; and national authorities.

¹ 2008 youth unemployment for Azerbaijan, Croatia, and Georgia;

2005 for Ukraine. Youth are those in the 15–24 age group.

Croatia

Georgia

EU27

Serbia

Russia

Ukraine

Slovenia

Kazakhstan

Azerbaijan

Turkey

Armenia


21

...improve the business environment,...

Doing Business Ranking (2012 )

Source: World Bank, Doing Business Survey.


Bett

er

bu

sin

ess e

nvir

on

men

t

0

20

40

60

80

100

120

140

160

180

GEO KAZ ARM AZE CEE KGZ EAP MENA LAC EM SA LIC SSA TJK UZB

22

...and enhance governance

Rule of Law (country Rankings, 2010)

Control of Corruption (country Rankings, 2010)

Source: World Bank, Worldwide Governance Indicators 2009.

1/ The Resource-rich group comprises the 41 resource-rich countries that are included in the Revenue Watch Institute's 2010 index.


0

10

20

30

40

50

60

Bett

er

go

vern

an

ce

0

10

20

30

40

50

60

Bett

er

go

vern

an

ce

23

Policy Priorities

Oil and Gas Importers:

• Aim for sustained fiscal

consolidation

• Rein in large current

account deficits

• Tighten monetary policy

further (KGZ, TJK)

Oil and Gas Exporters:

• Exit from accommodative

fiscal and monetary

policies to combat inflation

• Improve the transparency,

quality, and efficiency of

public spending

• If global growth deteriorates sharply,

macroeconomic policy tightening may

need to be put on hold in the short term

• Need to repair bank balance sheets and

tackle high NPLs in some countries

Medium-term policy priorities:

• Address unemployment

• Improve the business environment

• Enhance governance


24

To access the full report online or to provide comments, please visit:

http://www.imf.org/external/pubs/ft/reo/2011/ mcd/eng/mreo1011.htm

or go to

http://www.imf.org and click on the link for Regional Economic Outlook

http://www.imf.org/external/pubs/ft/reo/2011/mcd/eng/mreo1011.htm




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